KOLKATA: India’s largest telcos Bharti Airtel, Vodafone India and Idea Cellular will be hit hard if the up to $70-billion (Rs 469,000 crore) spectrum sale likely around March 2016 is even a partial success, warns brokerage Credit Suisse. It added that the auctions are among the two major negative events for the sector in 2016, the other being the entry of Reliance Jio Infocomm.

The Swiss brokerage believes the lure of easy government financing, the fear of losing out on premium spectrum holdings, genuine gaps in every serious telco's spectrum portfolio apart from Jio’s entry into the 4G space would compel the top players to take the plunge and ensure the auctions are a partial success, which, in turn, could “damage returns” of an already debt-laden telecom industry.

“This is likely to be the largest quantum of spectrum to be sold at once, with an estimated value of $60-to-70-billion, and even a partial sale (say: $10-15 billion) could be a serious hit on operator returns, that is not reflected in stock prices,” said Credit Suisse in a note to clients, a copy of which was seen by ET.

It expects the Narendra Modi-led government to also auction premium 4G spectrum in the 700 Mhz band in the upcoming airwaves sale, barring a strong recommendation from the Telecom Regulatory Authority of India (Trai) to the contrary, which it feels will be unlikely.

More so, as the estimated value of this premium 4G spectrum alone is pegged at $45-49 billion, out of the estimated $70 billion gross value of all airwaves, across bands.

“Such once-in 20-year opportunities to buy spectrum will be difficult to pass and we expect incumbents to participate in these future auctions to maintain their market leadership,” it said.

According to the brokerage, even if only 15-20% of the auctioned spectrum gets sold, the $6-14 billion spending would be a financial burden that will lead to an immediate and further reduction in industry returns, “with any related Ebitda uplift being uncertain and back-ended”.

The brokerage feels the fear of losing out on spectrum holdings would ensure the auctions to be at least a partial success, as Jio’s upcoming commercial launch.

So much so, Credit Suisse believes “2016 will be the year of two major negative events for the telecom sector - the upcoming mega auctions and the launch of commercial operations by Jio”.

It also warned that a potential “worst case scenario for the telecom industry” could emerge if the government decided against selling all the spectrum at once and instead opted to sell “smaller chunks over multiple auctions to get the best prices”.

Credit Suisse also said the advent of easy government-financing schemes had rapidly made the government the “largest lender” to the Indian telecoms sector, accounting for over 30% of all outstanding debt for the industry. Small wonder, analysts at the foreign brokerage, feel the presence of government financing has largely fuelled demand in past auctions.

“Unlike a bank loan, operators such as Bharti Airtel and Idea Cellular are not recognising the full spectrum liabilities on their balance sheets, which tends to understate their reported leverage,” said the Swiss brokerage in its note.

According to the foreign brokerage, even if the government doesn’t auction 700 Mhz spectrum this time, the other bands on offer (read: 800 Mhz, 900 Mhz, 1800 Mhz, 2300 Mhz and 2500 Mhz bands) could themselves generate more revenue than the $18 billion garnered by the March 2015 auction, which was historically India’s biggest spectrum sale till date.

In their recent submissions to the sector regulator, incumbents Bharti Airtel, Vodafone India and Idea Cellular along with newcomer Jio strongly opposed the auctioning of 700 MHz airwaves anytime soon on grounds of associated ecosystem challenges.

Separately, RCom initiated contempt proceedings in the apex court against the Department of Telecommunications, blaming it for delaying a spectrum sale that would have enabled dues to be paid to Ericsson and lenders.